Peugeot Leads Drop in Junk Debt as Seat Pagine Extends Decline

Jan. 30 (Bloomberg) -- PSA Peugeot Citroen bonds led
declines in European junk-rated securities after the company was
ordered to halt restructuring plans while car workers strike
over job losses.

Peugeot’s 6 percent bonds due 2033 dropped 3 percent to
83.96 cents on the euro at 10:59 a.m. in London and have lost 8
percent this week, according to data compiled by Bloomberg, the
biggest weekly decline since December 2008. Bonds of Seat Pagine
Gialle SpA, Italy’s largest directory publisher, extended losses
after the company suspended a coupon payment.

French auto workers are striking as Peugeot and Renault SA
seek to eliminate 18,700 jobs, about 17 percent of their
workforces, as sales slump for a sixth year. Peugeot’s banking
unit completed about 5.3 billion euros ($7.1 billion) in loan
agreements Jan. 14 as part of a refinancing plan aimed at
stemming the effects of a sales drop.

“The restructuring is a good step towards improving
profitability as excess capacity in France has been a problem
for many years,” said Peter Kwaak, a fund manager at Robeco
Groep NV in Rotterdam, who oversees 12 billion euros in
corporate bonds. “But such a process is always difficult,
especially in France.”

Credit-default swaps protecting Peugeot’s debt for five
years rose 41 basis points this week to 723, the highest since
Nov. 30.

Bondholders accepted a 1.28 billion-euro debt-for-equity
swap last march and credit-default swaps linked to Seat Pagine’s
debt were settled at an auction in December 2011 after a
failure-to-pay credit event.

In the new issue market, Hellenic Telecommunications
Organization SA is selling the lowest-rated bonds from a company
in Europe’s periphery in at least seven years, data compiled by
Bloomberg show. It will price five-year benchmark bonds in euros
to yield 8 percent to 8.25 percent, a person with knowledge of
the deal said.

Credit Derivatives

The company has a Caa1 rating from Moody’s Investors
Service, seven steps below investment grade. Speculative-grade,
or junk, debt is rated below Baa3 by Moody’s Investors Service
and BBB- by Fitch and Standard & Poor’s.

The Markit iTraxx Financial Index of swaps on 25 banks and
insurers was up two at 142.

A basis point on a credit-default swap protecting 10
million euros of debt from default for five years is equivalent
to 1,000 euros a year. Swaps pay the buyer face value in
exchange for the underlying securities or the cash equivalent
should a borrower fail to adhere to its debt agreements.